What is the future of India’s office market?

May 4, 2020

On Tuesday, March 24th Prime Minister Narendra Modi announced a 21-day stay-at-home order that would ban India's non-essential workers from leaving their homes. The order came in response to the growing coronavirus pandemic that has seen more than 3,000,000 report cases around the world, according to the World Health Organization. Following the announcement, Indians, like many others around the world, retreated to their homes to begin their three-week long self-quarantine.

Despite this large-scale effort, on April 14th Prime Minister Modi extended the stay-at-home order another two and a half weeks to May 3rd; just Friday, the order was extended to May 17th.

Though it’s unclear when we’ll see the true end of coronavirus and be able to return outside, we’re certain this pandemic will have ripple effect in India’s office commercial real estate sector.

Pre-Coronavirus

Before COVID-19, India’s office sector was on the incline. At the end of Q4 2019, leasing activity the country remained largely unaffected despite international trade wars and a global shutdown. Tech firms were the most popular lessees with several major companies committing to large spaces to accommodate their ambitious growth plans. Compared to 2018, net absorption in India’s major seven cities had grown by more than 20% to 45M SF at the end of 2019.

India is popular for its favourable rental rates, skilled labour force and ready supply of infrastructure, particularly for IT/ITES companies. The office market has traditionally relied on these aspects to draw in global companies that could sway market favourability, but will it be enough in a post-coronavirus world? What can Indian’s office market expect to see in the coming months?

Post-Coronavirus Predictions

More subleases, less direct tenancy. As a cost-savings measure and a way to recoup lost revenue due to COVID-related closures, companies will begin to sublease excess space. This means small- and mid-sized businesses looking to rent office space will have more options to choose from if larger companies downsize and encourage their employees to work from home. Subleasing will be the preferred option for most because it frees up much-needed capital for the sublessor and provides a suitable short-term option for businesses hesitant to directly commit to new space.

Expect delays in construction activity. Those companies who are looking for a direct lease in a new space can expect a shortage of inventory in the market this year. Coronavirus shutdown construction sites very early on and project schedules have been delayed indefinitely. We can only assume building activity can resume when the threat of COVID-19 is gone and construction firms have adopted appropriate sanitary measures to protect their workers.

Demand for flexible space will go up. Before coronavirus, we heard of Fortune 500 companies leasing flexible office space in some of the markets where they existed; we predict more companies of all sizes will follow this pattern—especially now. Flexible spaces exist in all markets around the world, offer a place for those who need a physical workspace to conduct business and curb real estate costs. Businesses looking not looking to sublease but still wanting an affordable space may find that flexible offices are their best option in a post-coronavirus world.

Like it or not, work from home is here to stay. If “The Largest Work From Home (WFH) Experiment Ever” has taught us anything, it’s that our employees can indeed be just as productive at home as they are in the workplace.

Employees will begin to prioritize their health and wellness. Even when we’re able to return to the workplace, they’ll expect more relaxed WFH policies in place if choose to continue socially distancing. Likewise, companies rethinking their business continuity plans (BCP) will need to invest in the appropriate video-conferencing software to accommodate their WFH employees. They may also buy or lease BCP locations to address any potential disaster management situations.

New standardized lease language. For now, rent relief programs are a small fix to a much larger problem; at some point, landlords and building managers will come looking for the full rent. Enforceable force majeure clauses will become standard lease language. Clauses like this have always existed in leases to shield occupiers from monetary and legal responsibility should they become unable to fulfil their end of the contract.

What steps can you take to ensure your company is safe in a post-coronavirus world? Contact one of our real estate advisors today! We’re available online 24/7 and remain committed to putting your business first.

Arjun Kumar, SIOR, MRICS is a seasoned real estate professional with over 20 years of experience in the industry. His acute skills as an occupier representative have contributed to the continued growth of Cresa’s India office.

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